13 May 2016
Markets
- Both local and global markets rose, supported by rising commodity prices which buoyed sentiment.
- Europe finished flat on the back of weak industrial production data, and concerns regarding Greece bailout negotiations and the UK’s pending vote.
- In local stock news, Crown entered into an agreement with their partner in Macau to sell them 155m of the shares held by Crown in their venture. This will reduce Crown’s shareholding from 34.3% to 27.4% with proceeds of just over $1bn being used to reduce Crown’s debt.
- Macquarie Group achieved a 29% rise in full year profit to a record $2.06bn and guided that they expect next financial year to be broadly similar. Operating income rose nearly 10% whilst their return on equity also rose. The final dividend also came in ahead of expectations.
- BHP clarified that the Federal Court of Appeal in Brazil ratified the original compensation and restoration framework, which provided for financial compensation of US$5.1bn (BHP 50% share) to be paid over 15 years. The settlement does not prevent other parties from launching their own claims, but any future claims would need to be claims not covered by the original framework.
- Port Hedland, WA, released its iron ore statistics for April with Chinese demand remaining resilient (circa 87% of total exports) as exports per day grew 2% on last month and 8% on the same time last year. This was offset by weakness from Japan, which saw a 66% drop since last month.
- The Australian dollar stayed lower following its sharp drop post the RBA’s decision to cut rates last week.
Economics
- The Reserve Bank of Australia slashed its inflation forecast for this year to 1-2%, down from 2-3%, which is their target band for interest rate decisions. They also reduced their forecasts for 2017 and 2018, which goes a fair way to explaining the recent cut in the cash rate. More rate cuts may be on the way.
- It appears the RBA is less concerned with the economy’s growth but more concerned that the negative inflation reading in the March quarter and ongoing anaemic wages growth may become embedded in consumer, investor and business owner decision making.
- Rental prices across Australia fell over the last year, but the data differed widely from state to state. Sydney and Melbourne rents were up 1.4% and 1.7% respectively, whilst Perth and Darwin were down 8.9% and 12.6% over the last 12 months.
- The US economy added 160,000 jobs in April, below the 200,000 expected by economists. The unemployment rate was unchanged at a healthy 5% with wages now up 2.5% (even higher for service sector jobs). Positively, job openings rose to 5.76m in March.
- The Bank of England left interest rates and quantitative easing levels unchanged as expected, while it revised its economic growth estimates downwards. Governor Carney highlighted that Britain’s potential exit from the EU could drive a material slowdown in growth and a rise in inflation.
Politics
- The Federal Election campaign officially got under way this week. Rumour has it that significant campaigning by both party leaders will take place in Queensland where plenty of seats are up for grabs. Voting in seats in other states is largely expected to go in favour of the incumbent.
- Euro area ministers met in Brussels to discuss Greece and the delayed first review of its third assistance program, completion of which is necessary to unlock the next tranche of funding. Greece parliament subsequently passed a package of reforms (greater austerity) aimed at unlocking additional bailout funds.
- Donald Trump further solidified his position as the leading Republican nominee for the Presidential elections, whilst global watchers continue to wait for some semblance of intelligent debate on the UK’s upcoming vote to remain in or exit the European Union.
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